Can my construction company claim tax deduction for donated labor and materials to a non-profit?
I work at a construction firm and we have a question about claiming tax deductions. Back in 2019, our company (we're incorporated) completed a renovation project for a local non-profit organization. After finishing the job, we decided to donate a portion of the labor and materials - essentially we didn't charge them for everything we provided. The total project was valued at around $78,000, but we only billed them for $52,000. Now we're trying to figure out if we can claim the remaining $26,000 as a charitable donation for tax purposes. I know there are specific IRS rules about this, but I'm not sure if we can deduct just the materials, or if the donated labor counts too. We normally get Form 8283 for equipment donations, but this situation seems different. Our accountant is a bit uncertain about how to handle this. Has anyone dealt with something similar or know what the IRS rules are for construction companies donating partially completed work?
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Lindsey Fry
This is actually a really important distinction in tax law. For incorporated construction companies, you generally can only deduct the actual materials that were donated, not the value of the labor or services. The IRS doesn't allow deductions for donated services - even professional ones. So in your case, you should separate the $26,000 into two components: the actual cost of materials you provided without charging, and the value of labor/services you didn't bill for. Only the material costs would be deductible as a charitable contribution. You'd still need to document this properly with Form 8283 for the material portion, and get an acknowledgment letter from the non-profit specifically identifying what was donated. Also make sure the non-profit is a qualified 501(c)(3) organization.
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Leo Simmons
•Thanks for the explanation! So just to be clear - if the $26,000 in unbilled costs breaks down to about $15,000 in actual materials and $11,000 in labor, we would only be able to deduct the $15,000 materials portion? And we'd still need the 8283 form for that part?
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Lindsey Fry
•That's exactly right. You can only deduct the $15,000 materials portion as a charitable contribution. The $11,000 in labor isn't deductible as a donation, even though you essentially "gave it away" by not charging for it. Yes, you should still complete Form 8283 if the donated materials exceed $500 in value, which yours clearly do. Make sure you have proper documentation showing the actual cost of those materials, and get a written acknowledgment from the non-profit specifying what materials were donated.
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Saleem Vaziri
I was in a similar situation with my landscaping business last year. After struggling to figure it out myself, I finally used taxr.ai (https://taxr.ai) and it saved me so much confusion. I had donated both materials and labor to a local community center, and was getting conflicting advice about what I could deduct. I uploaded my project documentation and receipts to taxr.ai and their system analyzed everything and gave me a clear breakdown of what was deductible and what wasn't. It even generated a report I could give to my accountant showing exactly how to categorize everything according to IRS rules.
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Kayla Morgan
•How exactly does taxr.ai work? I'm wondering if it's something that would help with my situation too. Did you have to provide a bunch of documents or was it pretty straightforward?
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James Maki
•I've heard about these AI tax tools but I'm skeptical about using them for business deductions. How accurate was it compared to what your accountant was telling you? Did the IRS accept everything without questions?
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Saleem Vaziri
•It's actually pretty simple to use - you just upload your documents (I uploaded receipts, project estimates, emails with the non-profit, etc.) and their AI analyzes everything and extracts the relevant tax information. It took about 10 minutes to upload everything and get results. The accuracy was impressive - my accountant was actually on the fence about several items, but the detailed report from taxr.ai cited specific IRS regulations that clarified exactly what could be deducted. We filed accordingly and had no issues with the IRS. It basically confirmed that materials were deductible but labor wasn't, and helped us properly document everything for the 8283 form.
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James Maki
I need to follow up on my earlier skepticism about taxr.ai. After our discussion, I decided to try it for a similar situation with my consulting business where we had provided both services and materials to a charity event. I was genuinely surprised by how helpful it was! The system clearly separated what was deductible (the actual materials) versus what wasn't (our consulting time and services). It even showed me the specific IRS regulations and gave me a template for the acknowledgment letter I needed from the non-profit. Saved me from making an expensive mistake on my taxes. My accountant was impressed with the documentation too.
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Jasmine Hancock
For anyone dealing with complex tax questions like this, I've found that getting direct answers from the IRS is essential, but nearly impossible. After spending DAYS trying to get through on the phone, I tried a service called Claimyr (https://claimyr.com). You can see how it works here: https://youtu.be/_kiP6q8DX5c Basically, it got me past the IRS phone tree hell and connected me with an actual IRS agent who answered my specific questions about material donations from my business. Worth every penny for the time saved and getting an official answer straight from the source.
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Cole Roush
•Wait, how does this actually work? Do they somehow have special access to the IRS or something? I've spent literally hours on hold with the IRS and eventually just gave up.
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Scarlett Forster
•This sounds like BS to me. Nobody can get you through to the IRS faster - they have one phone system and everyone has to wait. I'm betting this is just another service that charges you and then puts you on hold exactly like you would be anyway.
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Jasmine Hancock
•It's not special access - they use technology to navigate the phone system and wait on hold for you. When they reach an actual person, they call you and connect you directly to the IRS agent. I was skeptical too but it actually worked. They basically have automated systems that keep redialing and navigating the phone menus until they get through, which can take hours sometimes. But the difference is you don't have to sit there listening to hold music - they call you when an actual human picks up. Saved me about 3 hours of hold time last month.
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Scarlett Forster
I have to admit I was wrong about Claimyr. After responding so skeptically here, I was desperate to get an answer about a business donation issue similar to the original post. After my third attempt to call the IRS myself (wasted 45 minutes each time before giving up), I tried Claimyr. They actually did exactly what they promised. I got a call back about 1.5 hours later and was immediately connected to an IRS representative who answered my question about donating construction materials. The agent confirmed what others here said - only materials are deductible, not labor. Have to say it was worth it just to get a definitive answer directly from the IRS without spending my entire day on hold.
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Arnav Bengali
One thing nobody has mentioned yet is that while you can't deduct the labor as a charitable contribution, there may be another tax approach. Since you essentially performed the work at a discount (by not charging for some labor and materials), you could simply recognize less income rather than trying to claim a deduction. Instead of recording $78,000 in income and then a $26,000 deduction (which won't fully work as others have explained), you could just record the $52,000 you actually billed as income. This would have the same bottom-line effect on your taxes but avoids the charitable deduction limitations.
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Leo Simmons
•That's interesting - I hadn't thought about it from that angle. If we just record the $52,000 as income, wouldn't we still need to account for the costs of the unbilled materials somewhere on our tax return? I'm trying to understand how this would work from an accounting perspective.
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Arnav Bengali
•You would still record all your actual expenses (including the full cost of materials used on the job) as business expenses on your tax return. So if the job cost you $65,000 total to complete (including both billed and unbilled portions), you'd show $52,000 in income and $65,000 in expenses. This effectively gives you the tax benefit without needing to claim a charitable deduction. However, you should discuss this approach with your accountant to make sure it's properly documented and in line with tax regulations for your specific situation. The key is being consistent in how you record both the income and expenses.
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Sayid Hassan
Has anyone looked into whether Section 170 of the tax code might apply here? I think there's a specific provision about contributions of "inventory" that might be relevant for the construction materials portion.
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Lindsey Fry
•Yes, Section 170 does address inventory donations, but it's typically for manufacturers or retailers donating their own inventory. For construction companies, the materials would generally be considered supplies rather than inventory, unless you also operate as a building materials retailer.
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Sophia Clark
This thread has been really helpful! I'm dealing with a similar situation where my HVAC company donated equipment and installation services to a community center last year. Based on what everyone's saying, it sounds like I can only deduct the actual cost of the equipment/materials, not the installation labor. One question though - for the materials portion that is deductible, do we use our cost basis (what we paid for the materials) or the fair market value (what we would normally charge a customer)? I'm seeing conflicting information on this and want to make sure I'm calculating the deduction correctly for the 8283 form. Also, does anyone know if there's a time limit on when we can claim this deduction? The work was completed in late 2023 but we're just now getting our documentation together.
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Noah Irving
•For the materials portion, you generally use your cost basis (what you paid for the materials), not the fair market value. The IRS is pretty specific about this - donated property is typically valued at your adjusted basis, which for materials would be what you actually paid for them. As for timing, you can claim the charitable deduction for the tax year when the donation was completed. Since your work was done in late 2023, you should be able to claim it on your 2023 tax return (or amended return if you've already filed). Just make sure you have all the proper documentation from the community center acknowledging the donation before you file.
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